Startups and Bitcoins in United Arab Emirates

UAE appeared on the World political map in 1971 as a result of major geopolitical events, which fundamentally changed the balance of military powers in this region. It had been preceded by the United Kingdom army withdrawal from the Middle East and demonstrative navy maneuvers staged by Iranian militants near Tund Islands.

In the aftermath of those incidents official representatives of two emirates — Abu Dhabi and Dubai, which both account today for more than 65% of UAE population and almost 95% of its territory — reached an agreement to form political and military union, brining their administrative apparatuses under one state’s umbrella. Soon after five smaller emirates — Ajman, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain — also signed this historic accord. In February 1972 the main legislative body of UAE 40-members Federal National Council was formed and sworn to action.

The Federal Supreme Council, which consists of seven emirs, is the most highly positioned executive organ of UAE. The federal president, which, according to the long-established tradition, must also be the emir of Abu Dhabi, is followed in the state’s hierarchy by the prime minister, which, according to the same tradition, must be the Dubai’s emir. Political parties are officially considered to be illegal in UAE and all medias are closely monitored by authorities. Sharia law is recognized to be an integral part of the UAE legal system.

During past several decades, in an attempt to end its economic over-reliance on oil industry, UAE government has converted the country into one of world’s top tourist destinations. Today more than 10 million people visit emirates annually. UAE is widely recognized as the ground zero for luxurious and extravagant hotels, some of which present themselves real engineering marvels. Burj Khalifa and Palm Islands alone host more than 3 million tourists each year. Still, oil export constitutes almost 80% of UAE budgets revenues.

High-tech sector’s role in emirates economy is almost negligible. At the same time, UAE high-income population coupled with modern telecommunication infrastructure provide a number of business opportunities to local founders. On the negative side, slowing economy with its continuing dependence of the oil extraction industry, added by excessive government’s control over the local Internet and high administrative barriers to SME have significantly undermined growth potentials of local startup ecosystem.

The status of crypto-currencies in the United Arab Emirates is far from being resolutely set by its government. Almost immediately after the publication of the “Regulatory Framework For Stored Values and Electronic Payment Systems” by UAE Central Bank in January 2017, which, in its section D.7.3. “Provisions for Virtual Currencies”, firmly and unambiguously stated that “all virtual currencies (and any transactions thereof) are prohibited”, there was 180 degree turn made by one of the Bank’s most distinguished representatives — his governor himself.

He said in interview to one of the local news agencies that “these regulations do not cover virtual currency” and these “regulations do not apply to Bitcoin or other crypto-currencies”. It revealed a conflict of interests, which apparently exists inside of UAE government. We can assume that after the above mentioned report was made public some very important state official(s) privately demonstrated his (their) disapproval of this report, which then caused central bank’s directors to denounce his official position on crypto.

However, judging by a reportage, which appeared in medias at the end of October 2017, UAE bank’s head still keeps his negative attitude toward crypto-currencies, which he sharply criticized for the lack of supervision, claiming that “it facilitates money laundering and terrorism financing”. The fact that this high-ranking bureaucrat has again openly expressed his anti-crypto views may have far reaching consequences. It also may signify the beginning of new stage of legislative crack-down on digital currencies in UAE.

Meanwhile, despite of the absence of legal persecution precedences, trading crypto as well as organizing ICOs remains legally risky in UAE.

Business Notes for Startups Founders:

  • political climate: not friendly;
  • economic climate: friendly;
  • regions to focus: locally;
  • industries to focus: generally — B2C, e-commerce, entertainments, marketplaces, FinTech, e-fashion, e-services;
  • major limitations: slowing economy (GDP growth rate fell from 7% in 2012 to 3% in 2017), over-dependence from oil revenues;
  • stimulus: top high-income population (per-capita exceeds $40,000), highly developed telecommunication infrastructure (fixed Internet penetration rate is nearing 100%);
  • opportunities: to built a B2C mobile e-business aimed at young wealthy urban users.
  • Cryptocurrencies and ICOs (outlook): unclear (negative).

Angel investor and founder of The First International Incubator for Silicon Valley Companies (FirstInternational.In) in the Bay Area, CA, USA.

Angel Investor (20+ years), Serial Entrepreneur (14+ companies), Author (> 1M views), Crypto Influencer, Founder of Evernomics, 40+ Countries